Compound Interest on Investments Can Beat Inflation> Spokane Journal of Business
As an advisor since 2006, I have had my share of questions regarding âwhy invest? I have no doubt shown clients these charts of compound returns over time, the S&P turning $ 10,000 into $ 20,000 and then how, with a little help from the average dollar costs and a few. additional contributions over time one can retire with a few million dollars in the bank.
My experience has shown me that showing charts and trying to paint a picture of your future is easily lost on a mid-twenties or thirties. Yes, everyone knows retirement matters, but they have things to do nowâ¦ kids, travel, buying a first or second home, and maybe a change of job. It’s true. It’s now, and it’s right in front of them.
Today we find ourselves in the midst of one of the biggest supply shocks we have seen in decades.
The argument the Fed has between itself right now is whether the corresponding price pressure is transient or structural in nature. Whether this spike in inflation is here to stay or not – although I would say some of it is here to stay – the day has finally arrived and is staring us in the face as to the importance of funding. It is no longer necessary to discuss it with customers in terms of something important for the future.
Have you tried to do a renovation lately? Not only is it difficult to find a contractor, but the materials are so well safeguarded or their costs are so high that you are looking at an increase of about 30-40% year over year. Fancy buying a bike and hoping for a good deal? This doesn’t happen, assuming you can even find one.
I’m currently building a bike rack for an old trailer that my wife and I are remodeling, and some square rubber blocks that we need to finish the job are out of stock. What?!? Since when can you hardly buy anything at any time? We were trying to get the blinds cut for the trailer and Lowe’s could not get a new steel blade for their cutting machine due to supply issues.
Oh, and have you even thought about buying a house lately?
Now, if you’ve invested and compounded your money in the stock market over the past decade, you’ve probably made returns above 10% per year.
And while these returns wouldn’t have solved every problem in the supply chain, they would certainly help you a lot to afford things that suddenly cost a lot more than just a few years ago.
If you haven’t, it’s never too late to start. My sincere recommendation to start putting money aside now in an investment account for other future needs which will almost certainly worsen on their own.
This is one of the main reasons why the beauty of compound returns matters: Inflation is real. And while, like you, I might not be taking advantage of these new, higher prices, I do cherish this moment in time where I don’t have to point to a chart prepared on a reality 30 years into the future for say, “This is why I’m investing,” and hopefully someone will start their investment journey as soon as possible.
Dave Gordon is director of retirement planning at Ten Capital Wealth Advisors LLC in Spokane. he is reachable to 509.325.2003, and [email protected]
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